Renewable energy target cut would hit Budget

Reducing the renewable energy target would cost the federal budget about $680 million more to meet Australia’s target of 5% emissions reduction by 2020, according to modelling released today by climate and conservation groups.

The modelling found that cutting the RET would increase the profits of coal power stations while boosting the costs for the public through more pollution without reducing electricity prices for consumers.

It would see “the loss of billions of dollars of investment in the short term”; by further destabilising the policy environment for investors, it would drive up the costs of power sector investment in the future.

“Outright abolition of the RET would further increase pollution and undermine clean energy investment.”

The government has an inquiry underway into the RET. But Clive Palmer has said his senators will oppose any change in the term of this Parliament.

The modelling was done by Jacobs SKM and commissioned by the Climate Institute, the Australian Conservation Foundation and WWF Australia.

The current arrangement (including the large-scale RET plus existing hydro and small-scale solar PV panels) would lead to about 28% of national electricity coming from renewables by 2020-21. The modelling looked at capping it at 20% (the “reduced” scenario) as well as abolishing the RET altogether.

Reduction of the large-scale RET as proposed by some power companies would bring $8 billion extra profit to coal and $2 billion to gas generators (net present value of future profits 2015-30).

Under current ownership arrangements, EnergyAustralia is the company that would stand to gain the most. Its potential extra profit would be about $1.9 billion if the RET were reduced (and $2.2 billion if it was abolished).

But “if AGL purchases Macquarie Generation, it would become by far the biggest beneficiary of reducing the RET”, with combined extra profits of $2.7 billion if the RET were reduced.

“Origin Energy’s total extra profit would be about $1.5 billion. Origin owns the power station that would emit the largest amount of additional pollution under a reduced RET.”

The modelling found electricity prices would not be reduced and could rise slightly if the RET were reduced – by 15% wholesale and 2.5 % retail on average in the period to 2030. “This is consistent with modelling commissioned by the government and studies conducted independently,” the report said.

“For a household consuming 6.5 MWh of electricity annually (NSW average), reducing the RET would add about $35 to the annual power bill, with most of this increase taking place after 2020. Abolition of the RET would add about $80 a year.”

Reducing the RET would diminish investment in renewable energy in Australia out to 2040 by $8 billion in present value terms. Scrapping it would increase the loss to $10.6 billion, the modelling found.

Reducing the target would mean 150 million extra tonnes of carbon pollution by 2030, and 240 million tonnes by 2040. “Higher levels of pollution lead to socialised costs we estimate conservatively to be $14 billion.”

Article by Michelle Grattan, Professorial Fellow at University of Canberra

Any modelling in this area is highly subjective and should not be taken as gospel or anything remotely close to it.

The RET is a very expensive way of tackling carbon. Although commonly derided, Direct Action (albeit worse than emissions trading) will be much better targeted at the underlying issue and agnostic in respects of technology